Archive for the ‘Activist shareholders’ Category

Politics & proxy proposals

January 22, 2010

Update: Activists announce Feb. 4 that they are organizing for proxy fights and lobbying efforts to oppose corporate political involvement. The effort is under the rubric of ShareOwners.org.

The ink is barely dry on the US Supreme Court decision to allow corporations to spend money on political ads, but one likely consequence is that activist shareholders will gain fresh momentum for a wave of proxy proposals seeking to limit or prohibit political spending by public companies.

While political junkies are dithering about how corporate money might sway the 2010 elections, corporations and investor relations professionals should realize that the Jan. 21 Citizens United decision presages a different kind of elections: more shareholder proposals on political activity and spending.

Leading the charge on this issue since 2003, a Washington advocacy group called the Center for Political Accountability has worked with labor unions, religious groups and others to file proxy proposals – more than 60 in 2008 and again in 2009. These generally would require semi-annual reports describing political contributions and who makes the decisions – posted on company websites – along with special oversight by boards of directors of political efforts.

Within hours, the Center for Political Accountability announced the Supreme Court ruling makes it ”more critical” to press corporations for change on this issue. The advocacy group negotiates for self-policing by companies it targets, and it says more than 65 companies have adopted disclosure and board supervision.

Since shareholder activism may be Plan B for labor unions and liberal groups seeking to curb corporate money that might fund election efforts, I’m guessing we’ll see a lot more proxy proposals.

Of course, Plan C might be for Congress or the Securities and Exchange Commission to get into the act by requiring some form of disclosure or oversight of corporate political giving. Stay tuned.

© 2010 Johnson Strategic Communications Inc.

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Someone should’ve said no

July 6, 2009

Well, there’s knowing your shareholders – and then there’s going way too far.

The German magazine Der Spiegel reports today that the country’s largest bank, Deutsche Bank, hired private investigators to look into members of its management and supervisory boards – and a pesky shareholder.

To be sure, the bank was investigating information leaks it saw as threatening – but it seems obvious someone should have said “No.” Now, the bank faces reputational damage, scrutiny of top executives’ roles – and possible legal action.

A 2001 case involved a union representative on the company’s supervisory board, suspected of leaking earnings info to the press. In 2006, the bank investigated contacts between management board members and German media mogul Leo Kirch, who was tangling with the bank legally. Among the targets, Spiegel says:

The bank also had external helpers investigate a shareholder believed to have links with Kirch – Michael Bohndorf, a lawyer who resides on the island of Ibiza. The investigators compiled detailed reports on his movements and even looked into whether he had any personal weaknesses: alcohol, gambling, women? One insider reports that the agency resorted to hiring women to test him.

For years, Bohndorf has been annoying Deutsche Bank by asking dozens of questions at annual shareholder meetings and taking legal action if his questions aren’t answered. The bank has already informed Bohndorf of the spying operation and apologized for it.

Two other German companies, Deutsche Telekom and Deutsche Bahn, face spying scandals. American firms have fallen into this trap in the past.

When the company is in the heat of battle – litigation, proxy fight, M&A contest – a mood of paranoia can take over in the executive suite. But when it comes to violating the law – or doing something that will look stupid in The New York Times or Der Spiegel – someone on staff should be saying “No. Don’t go there.”

The sanity check, sometimes, might even come from investor relations.

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Aggressive activists usually succeed

February 7, 2009

No one on the corporate side wants to get that confrontational call or letter from a hedge fund or investor demanding a change in management. But a paper by two New York University profs in the February 2009 Journal of Finance concludes shareholder activism works – for shareholders, that is.

The study draws upon 151 hedge fund activist campaigns from 2003 to 2005, plus a second data set of 154 activist efforts spearheaded by individuals, private equity funds, VCs or other asset management groups. All of the campaigns studied involve aggressive calls for change such as gaining seats on the board, replacing the CEO, stopping a merger or pursuing strategic alternatives. Symbolic or minor changes aren’t included.

The authors look at stock price movement around the activists’ declaration of intent in a 13D filing and in the year following, as well as the types of change demanded and achieved.

The results?

  • Stocks of companies targeted by hedge fund activists earn a 10.2% abnormal return in the period around the filing of the 13D. Those facing other kinds of activists outperform by 5.1%.
  • Superior returns persist in the one-year period following the 13D. Hedge fund campaigns deliver an average 11.4% abnormal return after a year, and other activists’ interventions result in 17.8% outperformance.
  • When it comes to getting management to make the proposed changes, aggressive activists are more often successful than not. Hedge funds pushing a confrontational agenda win 60% of the time, and other investors achieve their objectives in 65% of the campaigns. Most commonly, they win board seats by threats of proxy contests.
  • Hedge funds often target more financially healthy companies and often demand cash payouts or share repurchases. Other activists are more likely to focus on changing strategies or spending priorities.

The study doesn’t focus on defensive strategies for companies - just outcomes. Prevention may be the best defense. In a time of depressed equity prices, management and boards should be taking actions (without anyone demanding change) to bolster shareholder value … reducing costs, strengthening the balance sheet, making needed changes in leadership.

Investor relations professionals, I suspect, can help mostly by serving as a timely and outspoken voice to convey shareholder concerns up the line – before anyone declares war through a 13D. Now, more than ever, IR should be listening and providing a conduit to management and the board.

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Keep an eye on the water

August 9, 2008

Companies continue to swim in what could be turbulent waters, especially management teams struggling with weak performance or caught in an economic riptide. And then there are what some folks call the sharks.

Shareholder activists are just as active in 2008 as last year, according to FactSet Research Systems Inc., a data-crunching firm. Activists unleashed 262 campaigns, including 53 formal proxy fights, in the first half of 2008. It’s virtually unchanged from 259, with 55 proxy fights, in the first half of 2007.

According to Financial Week (July 28-August 4), “A handful of hedge funds continue to pick the most fights.” Eight hedge funds are responsible for 30 percent of the battles, with Carl Icahn and Philip Goldstein’s funds at the top of that list, FW says.

FactSet runs a surveillance and intelligence service called SharkWatch, as well as a takeover defense monitoring and advice service called SharkRepellent. (We might guess from the names that there is a lack of affection for hedge funds and other activists – although FactSet gathers and sells data to varied players in the capital markets.)

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Hedge fund activists – doing what works

July 29, 2008

The best defense against “activist” shareholders going into battle against management is prevention: taking actions on management’s own initiative to realize shareholder value (e.g., cutting costs, making better use of the balance sheet, or confronting difficult decisions in leadership). Activists will keep hectoring companies they think are in need of change because, well, it’s a good investment strategy: 

Activism is become increasingly popular as an investment strategy among hedge funds for one main reason – it works. According to our research at 13D Monitor, the average return for more than 200 material activist campaigns that were completed during the past two years was 18.55 percent, nearly double the average return of 9.49 percent for the Standard & Poor’s 500 stock index for the same time periods.

- Kenneth Squire, founder of 13D Monitor,
“Not Your Father’s Activist,” Alpha, May 2008 

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